Market Timing Brief™ for the 9-27-2019 Close: “Stock Market Leaning Down. Why Over Half of Investors Now Expect a Recession. Gold and Treasuries On Sale.”

A Market Timing Report based on the September 27, 2019 Close, published Saturday, September 28th, 2019…

I deliver focused comments on market timing once a week.  These are supplemented with daily “Tweets/StockTwits” (see links below) and comments in the “markettiming” room on StockTwits.

I provide quite a bit of intraweek commentary, and if you don’t see it, you will miss out on quite a bit of context, so please click on the social media links below and have a read…  Thank you as always for being loyal readers and interacting on social media with your questions and comments! 

1.  SP500 Index Market Timing (S&P 500 Index®; SPY, SPX):

Last weekend I “called a top” for the U.S. stock market.  When that sort of call does not work, you should know, you simply buy higher, but what you do NOT do is buy the top.  There are truly bad places to add to your positions.  When a stock or an ETF is rallying, buy the first important breakout perhaps (but NOT with all of the money you intend for the position), and then add on the pullbacks, not on the further pops to the upside.  If there is really big volume with an up-move, you may decide to break that last rule, but in general, if you break it, you are handing some of your gains over to the “other guy/gal.”

My read on the markets this week is that the selling has only started, and we’re looking at a decline similar to or bigger than that we saw in May, which was a 7.63% fall from the top.  Targets are not helpful as pre-planned places to buy.  They are check points to see how the market is behaving overall at the time the stock/ETF reaches those points.  That’s why buying every move above a certain moving average like the 50 day or 200 day mav is not wise.  Often markets can rise above those in a “test,” only to continue falling.  No technical system is foolproof.  There is also a degree of art combined with science/data analysis in assessing market behavior.

Now some warn that machines could replace us, so it’s good to focus on..

WHAT THE MACHINES CANNOT HIDE!

Machine learning/artificial intelligence could eliminate some technical analytic methods from usefulness over time, but three things they cannot and will not ever be able to hide from you or me without also hiding it from the machines:

1. Prices of stocks/ETFs and indicators based on those prices indicating their relative performance to both themselves and other stocks/ETFs.

2. The number of shares being bought/sold and indicators based on that information.

3. The time over which that happens, giving rise to indicators like volatility.

Since what I do focuses on what the machines can never hide or even fully anticipate, my process can never be eliminated by a machine.  Prices at certain share numbers over time have to happen BEFORE the machines or I can get the data.  The machines COULD act faster, but as soon as they move in size, what they are doing will be reflected in the three parameters noted above.  That means they cannot hide from me or from you.  And if they beat us by a few seconds or even minutes, we can still capture the majority of gains in a new trend.  It’s enough to allow us to do very well.

What is happening “Under the Hood” this week?

1. Since last Monday, utilities rose even further as the market fell.  I said last week: “Only Utilities (XLU) are now outperforming the SP500 Index vs. the August 5th low (this does not take dividends into account, but utilities have some of the higher dividend yields).”  There is a catch if you are thinking about entering utilities at this point.

IF the market sells off more dramatically from here, NO SECTOR wins.  There are only relative winners, but ZERO absolute winners.  Also realize inflation is now ticking up slightly, so the dividends become less valuable as that happens.  Overall, deflationary forces around the world are high, so there could be room for more upside.  But watch your profits.  Decide at what level you’ll be out.  Read my complete note in last week’s issue (link to upper right).

2. Heath care (XLV) stocks accelerated their move to the downside.  The health care sector has been doing the worst off the August 5th low.   Again, read my complete notes from last week.

3. Though moving down at the same rate as SPX (vs. health care which is under-performing the market), the Energy Stocks (XLE) are continuing their decline after President Trump failed to respond to what is assumed to be Iran’s attack on the Saudi oil facilities.   Why?  Because Americans were overwhelmingly opposed, even in the conservative polls I saw, to U.S. involvement in saving the Saudi oil interests.  We sent them some military help, but there won’t be a U.S. led war against Iran any time soon.  Iran would not survive it, but it would cost the U.S. another $2 Trillion.  We dumped trillions into Afghanistan and Iraq that we could have spend on our infrastructure as China has done.  Trump is right about some things, one being that the second Iraq War was a waste.  Our men and women in uniform were killed and maimed, and the region remains a mess.

Trump has reiterated his election promise to stick to that which effects the U.S. and ignore troubles abroad wherever possible.  I would agree we don’t need American soldiers dying to save Saudi oil, but an Iranian takeover of Saudi Arabia, enriching the Iranians IS a strategic threat, because they sponsor terrorism. That is why the first Gulf War, Operation Desert Shield, was essential; we kept Kuwaiti oil out of the hands of Iraqi President Saddam Hussein.  The second Iraq war was fabricated by V.P. Dick Cheney who essentially forced our intelligence community to come up with flimsy evidence of weapons of mass destruction.  The war was then started on the basis of that evidence, which is why Sec. of State Colin Powell eventually resigned. He was duped by Cheney and was used to make the case to the world that we needed a second Iraq war.  Cheney should have been jailed for what he did.

Why do I go over this?  Because we should not repeat these horrific errors (meaning the 2nd war in Iraq as well as staying in Afghanistan forever!) we cannot afford the loss and/or crippling of our soldiers OR the extreme waste of our tax dollars), and because we need to understand Trump’s outlook to know what could happen in terms of market risks. 

4. Holding up somewhat better than the SPX but less so than utilities includes from top to bottom: XLRE (Real Estate) and XLP (Consumer Staples like KO etc.), XLI (industrials), XLK (Tech), and XLF (financials) and XLY (Consumer Discretionary; stuff you don’t need mostly but want; AMZN is a big part of that even though it’s also a tech stock via AWS).   ALL of these are off their highs.  Utilities is the only sector that has made a new all time high in the past week.

5. Gold and gold stocks have been in a pullback in sync with the rise and fall of the 10 Year Treasury Yield (TNX).  Read my article “When Does Gold Shine and When Does it Decline,” if you don’t know what drives gold.  You can search on that title to find it.

Let’s turn to the state of the market, which has made a lower high vs. the top yellow line in the SP500 Index market timing chart below…

What would satisfy me that the Bulls are serious?

They are not very serious this week!  The Bull Market Health Score this week = Bulls 0.5/Bears 4.5.  Last week we were at Bulls 1.5/Bears 3.5.  At the end of July before the pullback, we were at Bulls 2.5/Bears 2.5. 

For each checklist item below, I give you the points scored as Bullish or Bearish. 

1. New high?  Bears 1.0 point.  Answer: No.  There is a lower high in place for now as said above.  I gave the Bulls a half a point on Friday when I looked at this, but they did not deserve it after a new recent closing low was achieved.  The only “good news” is that despite that lower close, the index has not broken the base of the prior 3 days.  Write down this number: 2957. 73.  If the SPX falls below there, it could do a quick test below and rise again, but it must…or else we’ll see the next leg down from the Sept. high.

2. V*IX trend favorable?  Bears 1.0  Answer: No.  At the Friday close, the V*IX (* added to throw off the crawlers – welcome to the Matrix ;)) was 17.22 vs. 15.32 last week.  The V*IX Game Score as I call it is Bulls 2/Bears 5 as of the close Friday.  I have reverted back to a 7 point VIX Game Score.  The midpoint is now the “fulcrum.”

3. AD % Line in an Uptrend? (This is a proprietary stat; see base of report.): Bulls 0.5 point.  Answer: Neutral.  The indicator is in a downtrend, but still above the prior breakout above the 7-31-19 high.  The close was 16,683 this week vs. 16,700 last week.

4. Higher volume on Up Moves?  Lower volume on Down moves? Bears 1.0 point.  Answer: No.  The opposite was the case.  

5. Is the “U.S. Index Matrix Signal,” as I call it, positive?  Bears 1.0 point.  Answer : No. Both mid and small caps are down off a lower high, which itself is negative.  Mid caps are running aside large, which is better than small caps, which are now testing their 200 day mav. The small caps are the leaders on sell offs, so the Bears earned this point fair and square. 

Let’s check in on the context around the price action of the market by looking at the current Market Risks… 

We have some new earnings data this week…

Earnings Risk: what is shown are the projections in the FactSet 3-15-19 report followed by the reports from 4-12-19 through 8-09-19 with a skip of two weeks until the 8-30-19 data resumes the weekly data sequence (details HERE)… The arrows “—>” indicate 3 weeks of of omitted data in order to compress the data.  

For Q2 2019, analysts are projecting earnings growth of 0.1%  —> -1.3% ->  —> -2.1%  —> -2.6% -> -2.6% -> -3.0% -> -1.9% -> -2.6%-> -1.0% -> -0.7% -> -0.4%  DONE

and revenue growth of 4.6%  —> 4.3%  —> 4.1%  —> 3.8% -> 3.8% -> 3.7% -> 3.8% ->4.0% ->4.1% -> 4.1% -> 4.0%  DONE

For Q3 2019, analysts are projecting earnings growth of 1.8%  —> 0.8%  —> 0.3%  —> -0.5% -> -0.5% -> -0.8% -> -1.4% ->-1.9% -> -2.2% -> -3.1% -> -3.5% -> -3.6% -> -3.7% -> -3.8% -> -3.7%

and revenue growth of 4.4%  —> 4.4%  —> 4.2% —> 3.8% -> 3.8% -> 3.3% -> 3.2% ->3.2% -> 3.1% -> 3.0% -> 3.1% -> 2.9% -> 2.8% -> 2.8% -> 2.8%

For Q4 2019, analysts are projecting earnings growth of 8.1% —> 7.5%  —> 7.2%  —> 6.3% -> 6.3% -> 6.0% -> 5.4% ->4.9% -> 4.5%  -> 3.9% -> 3.5% -> 3.4% -> 3.2% ->  3.0% -> 2.9%

and revenue growth of 4.8%  —> 4.8%  —> 4.6%  —> 4.3% -> 4.3% -> 4.2% ->4.0%-> 4.0%-> 4.0% -> 4.0% -> 4.0% -> 3.8% -> 3.7% -> 3.6% -> 3.6%

For CY 2019, analysts are projecting earnings growth of  3.4%  —> 3.2%  —> 2.7% -> 2.6% -> 2.4% -> 2.3% -> 1.7% -> 1.9%  -> 1.5% -> 1.5% -> 1.4% -> 1.3% -> 1.3% -> 1.3%

and revenue growth of 4.7%  —> 4.7%  —> 4.5% -> 4.4% -> 4.3% -> 4.4% ->4.4% -> 4.4% -> 4.3% -> 4.4% -> 4.3% -> 4.2% -> 4.1% -> 4.1%

For Q1 2020, analysts are projecting earnings growth of 10.5% -> 10.7% -> 10.3 -> 9.9% -> 9.8% -> 9.5% ->9.2% >9.0% -> 8.5% -> 8.2% -> 8.1% -> 7.9% -> 7.9% -> 7.8%

and revenue growth of 6.2% -> 6.1% -> 6.0% -> 5.8% -> 5.8% -> 5.9% ->5.9% -> 5.7% -> 5.6% -> 5.7% -> 5.5% -> 5.5% -> 5.4% -> 5.4%

For Q2 2020, analysts are projecting earnings growth of 13.3% -> 13.3% -> 12.9% -> 13.2% -> 13.5% -> 12.0% ->12.6% ->  10.7 ->  9.9% -> 9.3% -> 9.2% -> 9.1% -> 9.0% -> 9.0%

and revenue growth of 6.8% -> 6.8% -> 6.6% -> 6.6% -> 6.6% -> 6.7% ->6.6% -> 6.5% -> 6.4% -> 6.5% -> 6.4% -> 6.4% -> 6.3% -> 6.3%

For CY 2020, analysts are projecting earnings growth of 10.7% -> 10.6% -> 10.6% -> 10.6%

and revenue growth of 5.6% -> 5.6% -> 5.6% -> 5.6%

You can see that earnings projections for Q3 2019 came down a bit more, and so did earnings in Q1 and Q2 2020. 

Here’s a Brief Review of the Other Market Risks at Hand:

China Deal Risk: President Trump’s Admin. said it was considering restricting the investment in China by Americans due to their lack of compliance with our reporting requirements.  That’s yet one other thing I support, but adding it just before the negotiations start could be problematic.  I would guess they consider it a way to create maximum pressure on the Chinese prior to the meeting.  Trump nearly pushed them over the edge with his threats to ratchet up tariffs yet again, which has led to these negotiations that supposedly must succeed by Oct. 15th, or he’ll impose them on China.  Trump needs a deal to shift public opinion of him during his impeachment, which is going to happen it seems.  (Impeachment does NOT mean conviction by the Senate though – see below.)

Fed Rate Cut Risk:  They are cutting one more time before the end of the year.  That’s it.  The market is not overwhelmed with pleasure as they wanted more. Now there is a 45% probability of a rate cut in October with the rest at “no cut.”  Per the CME, all but 31% expect a cut at the mid-December Federal Reserve meeting.  Only 36.8% expect another by January, and 44.4% expect a 4th cut by March 202o.  That goes to 50.3% by April 2020 (45.2% last week), so the majority expect the Fed to continue with at least one more rate cut by April of 2020 after a 0.25% cut in December or four cuts in total.  This is the first time I’ve seen that stat over 50%. 

Here is the problem with that final statistic!  Four cuts would mean the Federal Reserve thinks we’re headed into a recession.  This is debatable of course, but the general idea of a mid-cycle adjustment is that it’s just a few cuts (three max) to extend a recovery and no more.  More means trouble!

Let’s hope that 4 rate cut probability drops below 50% soon, or it means investors are EXPECTING A RECESSION vs. a further recovery!

As my loyal readers know, if there’s a recession, think up to MORE than December’s decline times two, or a Big Bear Market as I call it.  Wall Street does not tell you these things.  They want you to be happy to keep your money all under management or their fees go down.  “Just ride it out!” they say.  And then, being down 50%, you have to make 100% to get back to even.  You can see my exposure level on social media at the links above.  I’m currently positioned for a Mini Bear Market with the exception of the gold hedge.  Recession could still be a ways off time-wise, but we need to be on the lookout for further signs of it.  In the meantime, I believe the market will first make another all time high, before it starts to discount a recession.  (read prior issues to catch up on this thinking…)

In sum, we go down further as Q3 Earnings hit the fan.  Things should improve into year end and at the start of 2020, so the market then ralliesA final high is reached prior to the discounting of a recession, which brings on a “Big Bear Market.”  Got it?  😉  It’s a roller-coaster we’re now on. 

U.S. Iran War Risk: Consensus is that Iran was responsible for the attack on Saudi oil interests.  I’ve discussed the lack of reaction to it above.  Retaliation is problematic, as it could draw fire from Iran on U.S. troops in the area and start a big war, which Trump is adverse to, as said.

2020 Election Risk: Trump is purposely attacking Biden as he sees him as his top rival.  He wants to frame the election as “Capitalism vs. Socialism” as it appears Warren is now the #2 pick of the Democrats.  Biden vs. Trump is more like Coke vs. Pepsi.  Both are American colas.  Wall Street has said it’s “OK with Biden, but not with Warren” this week as Warren gained strength.  Warren and Sanders are off the charts liberal.  Sanders is the worst of the top three.  Buttigieg and Harris are very distant 4th and 5th picks, respectively, and falling.

The GOP is running this election campaign as I predicted.  This is another Nixon vs. McGovern (“wacko left wing nut”) race to Trump and the GOP.  With her current tax and investment policies, Warren has put herself in a corner.  I don’t think most Americans believe our wealthiest should have billions taken from them after they paid taxes on the money.  This is a country built by people who believe in creating wealth from the delivery of great products and services.  If some one is great at achieving wealth, they should share profits in my view, but taking capital away from the successful means money is not there for them to invest in other businesses as Bezos has repeatedly done.

Again, I do agree companies should be more generous with their employees via profit sharing exactly as my father did.  It would have been his birthday today, so cheers to my father’s generosity for his workers’ sake!  He could have stuffed his pockets, but he decided to share the profits instead. 

Trump Impeachment Risk: Read my analysis in the July 26th issue HERE.  I said previously: “They need new material to impeach Trump.  What they have is not sufficient or it would have been pursued already.”

I was exactly right.  Speaker Pelosi is moving forward mainly on the Ukraine Transcript issue wherein it was revealed that Trump acted like a mob boss, withholding military aide to Ukraine, while asking for the favor of investigating his political opponent Biden.  I would agree that Biden should have “recused himself” in dealing with a prosecutor who was considering investigating/prosecuting a firm Biden’s son Hunter had an interest in, but Biden was representing an Obama administration view that the prosecutor was corrupt and he was not investigating anything and needed to be removed.  They won’t likely prove anything new if they investigate Biden, so they can have at it, but what Trump did was:

1. Use a threat to get help in his political campaign from a foreign government.

2. Attempt to cover it up by hiding the facts in a locked down computer server which is supposed to hold highly classified documents.  That itself is a minor issue vs. #1.

3. Set himself up for possible extortion by Ukraine, once they realized what he had asked was not proper.  That could have had unintended consequences like their demanding a doubling of military aide.  This is a major issue, Trump does not understand or he would not have done what he did.

Trump has been acting as he did in his business.  Like a mob boss as I said immediately after reading the Ukraine Transcript (read the transcript yourself as every good citizen should HERE).  I’ve reported this on social media before, but here are the details.  Trump was a “legal business crook” who legally extorted business people so he could pay them 60 cents on the dollar.  This included someone I know, so I have direct knowledge of Trump’s corruption.  This businessperson lost a large sum to the “Trump Organization.”  What’s the scheme?  They pay a small fraction up front and then when the bill is due, they say, “We’ll give you 60 cents on the dollar we agreed to pay you if you sign this non-disclosure agreement on this settlement. Otherwise, take us to court!”  That’s what makes it all legal.  The offended party could have taken him to court, but they know law suits can run into the 100s of thousands particularly when the other side drags its feet.  How would you feel if you were cheated even with a contract in place, and then you could not talk about it, because you signed a non-disclosure agreement?

Bottom Line?  Trump will likely be successfully impeached by the Democrats and a few Republicans in the House.  The Senate could end up convicting him, but not likely on the current publicly known evidence or could do nothing, but now I believe that is unlikely.  I think they have to at least “admonish” him as they did President James Buchanan as described HERECensure could make him un-electable, so they will try to avoid it, but they will censure him if the evidence is bad enough.  If the Democrats cannot get a conviction, they’ll settle for “admonishment” or formal censure.  Of course, that is a matter for negotiation and the Democrats could end up with “nothing” if they don’t agree to censure or less prior to a Senate trial, and then, if vindicated by the Senate, Trump will be able to say he was vindicated by the Senate, which we all know has it’s limitations due to partisanship.  Still, he could use it in his campaign, especially with his base of voters.

Deficit/Debt Threat: No important change.  I’ll leave this here as a monument to our monumental debt, which could threaten interest rates in the future.  The only reason we are off the hook for now is because the rest of the world is in worse shape.  When rates rise, there will be “heck to pay.” 

Now take a look at the SP500 chart.  The green line is 2940.91, the
9-21-2018 High
preceding the decline ending December 24th.  The upper yellow line is the next target (now at about 3049, but rises slowly over time).

SP500 Large Cap Index (click chart to enlarge; SPX, SPY):

Market timing the SP500 Index (SPY, SPX). Coming off a lower high.

Coming off a lower high.

Now let’s check in on two “Canary Signals” we’ve been following:

“Intel-igent Market Timing Signal” (Intel; INTC):  Negative, although above the recent consolidation support.  Failed at the July high and now testing the breakout above 50.50 at a 50.78 close on Friday.

Bank of America (BAC) Market Timing Signal: Neutral, but mixed picture. There is a higher low (negative), but when TNX was down a bit Friday, BAC went up 0.76% with the SPY -0.54%.  31.17 is the Bull goalpost. Close was 29.35.  XLF and BAC look like better shorts than longs as long as the Federal Reserve is going to continue lowering rates.  When that changes, my outlook will change. 

Keep up-to-date during the week at Twitter and StockTwits (links below) where a combined 34,144 investors are following the markets with me…

Follow Me on Twitter®  Follow Me on StockTwits®.

Join the Conversation in the StockTwits “MarketTiming” Room

Now let’s go on to review investor sentiment…

Survey Says!

Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of -3.89% vs. +7.52%.  Last week I said: “The spread we’ve reached is OK for a lower high if that is confirmed early in the week.”  In fact the market turned down on Tuesday.  There is plenty of both upside and downside in sentiment this week.

Bulls Neutrals Bears
29.37% 37.37% 33.26%
Thurs. 12 am CT close to poll

2.  U.S. Small Caps Market Timing (IWM):

Three weeks ago:A breakout in small and mid caps next week would confirm the move in large caps. ”  Last week “It did not happen.  Stay away from small caps still.  They need a breakout above those lower highs.”  Small caps look negative and are leading the market down. 

Russell 2000 U.S. Small Cap Index  (click chart to enlarge; IWM, RUT):

Market timing the U.S Small Cap Index (IWM, RUT). Leading the market down.

Leading the market down.

 3. Gold Market Timing (GLD): 

I’ll stand by this for now:

“This is not yet the time to pivot out of gold trades in my view.  As long as the Federal Reserve is still lowering interest rates, gold/gold stocks will do well.  When inflation starts to rise again, we’ll have to sell our trading positions in gold.”

Gold has broken the recent up trend and is setting up a head and shoulders formation, which it cannot break the base of…or else.  Realize it did this (broke down) in early 2019 and still managed to recover to extend the rally, so down even below the arbitrary 20 day moving average is not “out.”  The last down trend was from Feb. to April, so it lasted quite a while.  The stock market peaked in early May.  On May 23rd, gold resumed its rally.  The G*LD trend will be negative below 139.35. 

The Gold ETF (click chart to enlarge the chart; GLD): 

Market timing the gold ETF (GLD). Pulled back but not done in my view.

Pulled back but not done in my view. Until proven otherwise.

4. Interest Rate Market Timing (10 Year Treasury Yield; TNX, IEF, TLT):

I said last week: 

“The simplest view of the chart tells you that the 9-2017 low of 2.034% could be the next upside target, before global slowing brings U.S. rates back down.  As said, we have to watch the incoming data, because that is not a given!”

We got to 1.903% last week and have been sliding down the 50 day mav since.   It’s unusual to see any investment slide down a mav like that and not fall further, so my money is on lower rates and higher gold/gold stocks.  By that, I mean my actual money!  I am diversified of course, but I have a decent sized gold/gold stock trading position as well as a core position I have not had to touch since the early 2000’s, when I doubled my gold position.  I sold my entire principle in 2011 as I’ve said before.  The rest of my core holdings are “gravy.”  

Check out the “Market Signal Summary” below – after you review the following chart…

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX, IEF, TYX, TLT, TBF):

Market timing the US 10 Year Treasury Yield (TNX, TYX, TLT, IEF). Yields already falling again.

Yields already falling again.

Now let’s review three key market timing signals together…. 

Do not use these signals as a trading plan.  They are rough guidelines.  I currently share my BUYS and SELLS in as timely a way as possible on social media (links above).

MY MARKET SIGNAL AND TREND SUMMARY for a Further U.S. Stock Market Rally with Real GDP Growth (“Real” means above inflation):

Stock Signal RED for a further U.S. stock market rally with a NEUTRAL SP500 Index trend.  The stock signal is based on small caps, as they often lead the market down.  They are doing so now!  The SPX needs a new high to turn back to Bullish, at least above the recent consolidation over the past 3 days.  It remains above the prior breakout, so it’s Neutral vs. Bearish.

The V*IX (which relates to SPX volatility; * added to symbol to throw off the webcrawlers!)  These are the targets: 13.31, 14.04-14.08, 15.04, the “fulcrum” range = [15.94-15.95 to 16.09], 17.06, 17.27, and 17.89.  The bonus target, #8, I am no longer keeping in the main score tabulation.  The Bears have 2 of 7 targets at a VIX of 17.222 (Friday close). 

The ‘Bull Nirvana Target’ is 13.31.”  (That is target #7 for the Bulls.) 

Gold Signal YELLOW  for a further U.S. stock market rally with a NEUTRAL Gold Trend.   What gold does mostly as I’ve written HERE is follow real interest rates. 

From before: “Remember GLD is being used as an indicator for the ECONOMY here.”  If gold continues to rise, it means the market believes real rates will  fall, which in the current context means the global economy is slowing.  That will ultimately hurt U.S. stocks. 

Rate Signal RED for a further stock market rally with a long term BEARISH and short term Bearish 10 Year Yield Trend.  (Remember: lower rates mean higher bond and Treasury prices)

I’ll add this reminder from 9-20-2019’s issue cited above: “Remember, FOUR Fed cuts will NOT be a “mid-cycle adjustment” and would be taken badly by the market ironically, considering the market’s addiction to lower rates.  ***A fourth cut means the Federal Reserve is seeing recession risk as significantly high.***”

Also for Reference: “Rates usually RISE slowly in a strong recovery and the stock market rally continues as they rise, as I’ve repeated multiple times on social media and here.  Empirically though, rates that are “lower” (than 3.11%) and are NOT rising rapidly have allowed the market to climb back above the prior all time high (ATH).”

I said weeks ago, “Watch the oil price too.  Higher oil tends to mean higher rates.”    It closed at 55.91 vs. 58.09 last week, and is trending down in the recent trading range that began in May.  Still holds: If it rises above 58.82 and then 60.94, oil and oil stocks will be off to the races.  63.38 would be the next target.  Oil spiked for one day  on Sept. 16th after the attack on the Saudi oil interests to 63.38, which was precisely the next target!  Then it fell the next day to 59.34.

Just a reminder: If TNX bounces too quickly and too high, this will give rise to Rate Shock III… As said before: “Watch the rate at which TNX climbs if the current trend reverses.  If it shoots up very fast, stocks will correct.”  In the Sept. 28th issue: “A rapid push higher in rates would mean trouble for stocks, as occurred in early 2018.  That’s what I called ‘Rate Shock.'”  The period of rising rates in early October I called #RateShockII.

The risk lately has been “Negative Rate Shocks.”  (Not negative rates in the U.S. yet!  “Negative” refers to the direction of the shock.)  First we had “Negative Rate Shock I” in December 2018 (because rates FELL while the Fed raised the Fed Funds rate 0.25% in mid-December, in what was perceived as a policy error by critics),  “Negative Rate Shock II” in May, and “Negative Rate Shock III” in August, which is on pause and awaiting the next pivot.  Note that rates are again FALLING.

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I thank Worden Brothers for the charting system I use to post these charts.  If you want to know more about the charting system I use every day, contact me.  It makes it much easier to follow along with me if you can see the charts and manipulate them on your own computer.  It’s a great investment to have an excellent charting system.

Note: I’ve updated my criteria for the equity signal for a further U.S. stock market rally to the following: GREEN = Bullish, YELLOW = Neutral, RED = Bearish.  In other words, the colors tell you whether the signal supports the stock rally or not, while the Bullish, Neutral, and Bearish designations are about the trend. 

A BEARISH trend signal does not mean we should not buy.  A BULLISH trend signal does not mean you cannot sell some exposure.  It depends on what is going on in the economy and how oversold/overbought the market is at a given point whether the Bearish signal is to be sold or bought, sold on the next bounce, etc. and whether a Bullish signal is to be bought or if profits should be taken.  A NEUTRAL trend signal does not mean the end of the Bull or Bear. It means to wait and look for possible subsequent entry points within the existing trend, Bull or Bear, but preserve capital if the entry fails.  Our strong intention is to buy low and sell high.  By the way, I will keep showing the prior orange “Trigger lines” in the IWM and GLD charts for now as reference points only; they have historical value for us from the post-2016 election period.

Copyright © 2019 By Wall Street Sun and Storm Report, LLC All rights reserved.

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2 Responses to Market Timing Brief™ for the 9-27-2019 Close: “Stock Market Leaning Down. Why Over Half of Investors Now Expect a Recession. Gold and Treasuries On Sale.”

  1. Charles says:

    If Trump is not removed from office by the Senate the Constitution of the United State regarding the impeachment of a President is destroyed! That means we have a King and someone above the law. Is Trump worth it? No favorable policy of any President is worth shredding our Constitution. Less importantly, Trump is not a decent human IMO and he is a criminal mob boss as you’ve articulated! The Republicans will go down as the party that protected the worst individual ever to hold the office of President and the party that destroyed our Constitution! If it is done, it Shall be written into the record and I know the game the republicans are playing, we get everything we want policy wise by ignoring Trumps crimes and then after he’s no longer in office via the 2020 election, the party will return to normal, the Democrat’s want forget! OAN, thank you!

    • David Durand says:

      As you know I’m an independent, but I cannot support corruption, and I won’t be blind to it. I knew all about Trump prior to the election and knew not to vote for him. Some say voting for Gary Johnson was a wasted vote, but that’s how you build a 3rd party. He was fiscally conservative, but socially tolerant. Trump was and is neither as evidenced by his massive deficits and his words and actions. Clinton was corrupt too, despite being socially tolerant, so I passed on her too in 2016.

      I believe what Trump did was abhorrent. It’s in black and white. No wonder the GOP is upset Trump released the evidence! I also agree that the Republican party that I grew up with has compromised itself with a man who minces words when referring to Nazis. That’s not my kind of Republican or my kind of President.

      In the meantime, the Senate has to weigh the offenses committed vs. the consequences and decide what is best for the American people and the rule of law. That the House did not move forward with impeachment based on obstruction tells you that there is a high bar for impeachment, even for the Democrats, although part of that is delay tactics by Trump and his administration. Don McGhan should have testified long ago to what really happened in regard to the request that Mueller be fired that he supposedly conveyed.

      Removing a President requires due process as any trial does. The reason the framers of the Constitution (framer is a fancy term for “writer”) referred to “High Crimes and Misdemeanors” was to leave the final judgment to Congress on removal of a President. Otherwise, they would have said, “The President SHALL be removed from office should s/he break any law whatsoever.” Then there would be no judgment involved. But it doesn’t. Trump could be indicted by a Federal prosecutor for the Ukraine call when he leaves office if the statute of limitations has not run out. Let’s be patient and see the rest of the facts. It may get worse for Trump, or it may not. The Republicans may come around to remove Trump in the end if more is proven than we currently know. Then we and the Congress can decide what we believe should be done about it.

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